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The SMA issues a call to action on ‘predatory levels” of steel scrap exports

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The competitive position of electric-arc furnace (EF) steel producers is dependent on an adequate domestic supply of reasonably priced ferrous scrap.

The United States owns the world's largest ferrous scrap supply. Unfortunately, U.S. policymakers are seemingly non-responsive to scrap export policies affecting the competitive position of domestic EF steelmakers. Through apparent indifference to predatory levels of steel scrap exports, they are permitting five countries—China, Turkey, South Korea, Taiwan and India—to abuse their access to the U.S. scrap supply, excessively draining the supply and triggering U.S. scrap market inflation.

These five countries obtained one-third of the U.S. scrap supply in 2009, accounting for 75 percent of U.S. scrap exports that year. They are undermining the American scrap supply, obtaining the largest tonnages of scrap exports in U.S. history. If these levels of scrap exports continue, they will potentially injure the competitive position of U.S. electric furnace steel producers, who now produce the dominant share of U.S. steel.

Moreover, given the involvement of other governments in world steel scrap trade, there is limited trade equity. Some countries simply prohibit scrap exports. Others, like China, impose export taxes to impede the flow of their domestic scrap overseas. Not one of them would countenance the export of up to one-third of their available supply. They are too energy-conscious to permit this, given their high sensitivity to the needs of their domestic steel industries. In effect, these are discriminatory trade policy actions which, if not eliminated, will leave the U.S. with little option but to adopt its own scrap conservation policy.

A concerted national commitment to increase energy efficiency is required to meet North America's future energy needs. The highly efficient energy consumption of EF steel producers along with the corresponding world's lowest greenhouse gas emissions per ton is consistent with U.S. goals.

So far, the U.S. is indifferent to the development of a ferrous scrap export policy similar to those of other nations. Instead, U.S. policy, or lack thereof, is allowing untenable amounts of ferrous scrap to be exported. Foreign steel company recipients then manufacture steel mill products from this scrap, reduce their energy costs and ship the finished products back to the United States, often as "beggar thy neighbor" steel trade.

This adversely impacts the competitive position of highly efficient domestic EF steel producers who must absorb the cost run-up attributable to excessive foreign demand for U.S. scrap and the market share loss from such steel product imports.

There is a statistically significant correlation between world ferrous ore pricing and ferrous scrap pricing, differing only with a time lag. Thus, as other countries tax their raw material exports (iron ore, for example) this raises raw material inputs and steel production costs.

The Steel Manufacturers Association (SMA) strongly opposes trade distortions engaged in by a variety of foreign governments with market interventions pertaining to raw materials, such as iron ore, coke, steel scrap, alloying elements and refractory materials. Chief among these are export barriers, including export taxes, export prohibitions, export quotas, license fees and limitations on who can export.

Government barriers continue to proliferate and have badly distorted international markets for raw materials; they give steel producers in the countries imposing these restrictions a damaging artificial advantage in international trade; they increase worldwide costs of production; and they place a heavy burden on steel and manufacturing industries in developing countries that do not have substantial reserves or supplies of raw materials.

It is a failed strategy to continue to attempt to negotiate about raw material restrictions without progress toward a meaningful solution.

SMA members, to little avail, have urged all governments to remove export barriers on raw materials, including those that are used in steelmaking. The SMA continues to urge other governments involved in these practices to dismantle their export barriers that distort conditions of competition and cause harm both to steel producers and to manufacturers of steel-intensive goods, again to no avail.

If the U.S. supply of ferrous scrap is mined out to an unacceptable level by excessive foreign demand from countries that conserve their own scrap reservoirs, there are clear national economic security implications to consider. An inflationary market-clearing scrap price triggered by excessive foreign demand could surely affect the competitive capability of U.S. electric furnace producers.

National economic security is a core reason for the United States to have a viable and strong domestic steel industry not dangerously dependent on excess foreign steel supply. U.S. electric furnace producers are an essential component of that security. That is precisely why U.S. policy should clearly recognize the value of, and needs to ensure the continued viability of, the U.S. ferrous scrap supply, the base feedstock for the preponderant, most efficient share of domestic steel production.

The United States cannot rely on offshore excess steel supplies to rebuild the nation's energy infrastructure, its transportation network, its roads, schools, water works, bridges, airports and hospitals. The continued competitive viability of U.S. electric furnace steel producers is very much premised upon an adequate supply of domestic ferrous scrap.

Thomas A. Danjczek is president of the Steel Manufacturers Association, Washington.